The impact of firm financing constraints on R&D over the business cycle

Kadri Männasoo () and Jaanika Meriküll

No 348, Working Papers from Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies)

Abstract: The paper studies financing constraints for R&D over the latest boom and bust episode in Central and Eastern Europe (CEE). Given that financial and venture capital markets in CEE are thin in comparison to those in high-income economies and that many of CEE countries experienced a credit crunch during the last recession, it is proposed that financing constraints have a significant adverse effect on R&D activity in these countries. The paper uses two complementary firm-level data-sources from ten CEE countries. The results suggest that the role of financing constraints for R&D expenditures in CEE countries is substantial, as the probability of credit constrained firms undertaking R&D activities is around 70% lower and firms’ R&D expenditure cash flow sensitivity is very high. Despite the severity of the crisis, the adverse effect of financing constraints for R&D did not increase in the financial crisis. It is also confirmed that, conditional on credit constraints, firms’ R&D activity is higher in a recession.

Keywords: R&D financing constraints; credit constraints; business cycle; Central and Eastern Europe (search for similar items in EconPapers)
JEL-codes: E32 O16 O32 O52 P23 (search for similar items in EconPapers)
Pages: 35
Date: 2015-07
New Economics Papers: this item is included in nep-ino, nep-mac, nep-sbm, nep-tid and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The impact of firm financing constraints on R&D over the business cycle (2015)
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